Squeezing water from a stone

By Jim Frederick

How do you squeeze water from a stone? That seems to be the goal of the U.S. Centers for Medicare and Medicaid Services in its long quest to cut prescription reimbursements for Medicaid patients by setting new, tighter payment caps for the community pharmacies that dispense those medicines.

At issue is how CMS will calculate future Medicaid reimbursements for generic drugs, using the average manufacturer price of prescription drugs. In its new proposed regulations, the agency — a division of the Department of Health and Human Services — is recommending that payments to pharmacies for those drugs be capped at 175% of the AMP that participating pharmacies pay for those multisource medicines.

CMS is in a drive to implement the new set of caps, known as federal upper limits, and has issued no fewer than seven proposed lists of FULs.

The problem is, many of those lists “would reimburse pharmacies below their drug acquisition costs,” asserted Doug Hoey, CEO of the National Community Pharmacists Association. NCPA’s SVP-government affairs, John Coster, sent another lengthy letter to CMS last week, calling on the agency to consider the constant price fluctuations in many drugs, the disparities in costs that different classes of pharmacies pay for the same generic, and the fact that “some independent community pharmacies could be forced to leave the Medicaid program or close altogether unless federal officials make changes to a proposed regulation relating to the calculation of Medicaid generic reimbursements.”

Boiled down to its essence, independent and chain pharmacy advocates argue that CMS is pushing pharmacies to accept a new and unacceptably low payment level for dispensing generic drugs to Medicaid patients, based on flawed and outdated benchmarks for the prices pharmacies have to pay for those drugs. Last fall, Hoey warned federal health policymakers that the new FUL proposals were “a disaster in the making for Medicaid recipients and the independent community pharmacists who serve them.”

Over the past few months, CMS has made some adjustments in its thinking about the payment caps. But the new FUL proposals still bristle with flaws, according to NCPA.

For instance, “Many PBMs are now unilaterally designating many drugs as ‘specialty’ drugs that can only be dispensed through their own proprietary mail-order pharmacies,” Coster asserted in his letter to CMS. “Many of these drugs could be dispensed through traditional community pharmacies, but PBMs indiscriminately designate them as ‘specialty’ to increase volume through their own mail order-pharmacies where they earn lucrative manufacturer rebates."

“Inclusion of manufacturers’ sales to mail-order pharmacies — masquerading as specialty pharmacies — is quite simply contrary to the law,” the letter charged. “If this is not corrected, manufacturers will have incentives to funnel more drugs through specialty pharmacies if they know they can count these sales toward the AMP and lower the overall AMP.”

Community pharmacy has been fighting this Medicaid reimbursement and AMP battle for a long time. (For a more complete view of NCPA’s position and its view of the threat posed by CMS’ current definition of AMP and FULs, click here.) And a resolution, like a mirage that retreats as you get closer to it, appears as far away as ever.

So, too, does any indication from the feds that they’ll begin to see the folly of trying to force a money-losing proposition on hard-hit small-town and urban pharmacies that rely on Medicaid for a large share of their prescription business. It’s another case of choosing short-term savings — reducing payments for the dispensing of lower-cost generic drugs — over the much greater long-term cost benefits that would come from encouraging more, not less, generic substitutions.